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Samsung sees chip profits up, mobile sales down in Q2 on chip shortage

Samsung Electronics Co Ltd said on Thursday it expects chip profits to increase but mobile profits to drop in the current quarter, as a global chip shortage affects its businesses in different ways.

Samsung, which reported a 46% rise in first quarter profit, said it expected memory chip earnings to improve “significantly” in the second quarter, as “market conditions improve on the back of strong server demand” as well as robust demand by other applications.

However, profit and sales at its mobile business are likely to drop in the second quarter versus the first due to supply issues for some components and a fall in flagship smartphone sales, the world’s top maker of memory chips said in a statement.

Samsung said its chip plant in Austin, Texas, has resumed full production after a winter storm shutdown in the first quarter, but its System LSI Business, which designs logic chips such as mobile processors, will likely continue to be affected by the production disruption this quarter.

The System LSI business plans to expand its use of outsourced foundries and strengthen cooperation with its in-house foundry to secure production capacity, Samsung said, noting the current global chip shortage could persist in the second half.

“Samsung Electronics’ own foundry is saturated with orders, it cannot handle the demand volume,” said Park Sung-soon, an analyst at Cape Investment & Securities. “So it is increasing the volume of outsourcing despite having an in-house foundry.”

Smaller cross-town rival SK Hynix said on Wednesday it will bring forward planned capital spending, but warned supply increases from the investment will come only next year, pointing to a prolonged global semiconductor shortage.

Samsung’s forecasts came as it posted a 9.4 trillion won ($8.48 billion) operating profit in the January-March quarter, its highest first-quarter operating profit since 2018.

The result, which was slightly ahead of the company’s estimate earlier this month, was driven by a 66% profit surge at its mobile business to 4.4 trillion won.

The jump was led by sales of its flagship Galaxy S21 smartphone series, while profit also soared at its television set and home appliance business, buoyed by continued stay-at-home demand.

Profits at its chip business, however, fell due to the cost of ramping up domestic production as well as losses at the Texas plant following the storm-related stoppage in mid-February that blunted the benefits of strong demand.

First quarter net profit rose 46% to 7.1 trillion won. Revenue climbed 18% to 65.4 trillion won.

Samsung’s shares fell 0.4% in early trade on Thursday, in line with 0.3% fall in the wider market.

($1 = 1,108.9800 won)

Reporting by Joyce Lee and Heekyong Yang; editing by Richard Pullin

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